The stalled housing market is one of the factors threatening to push the UK economy into recession. The consequences of that would be dire – higher unemployment, pressure on public spending, impacts on crime and family breakdown. The government must do what is necessary to stop that happening, and a strong partnership with local government will help. It was good to see the government recognise a role for local councils in this week’s package to help prevent homelessness and repossessions and provide more council housing.
The new measures will help some of those worst affected, but there was one bold step missing that could have made an even bigger difference. Giving councils the power to offer competitive mortgages to borrowers would tackle the real cause of the market seizing up, and that’s the lack of mortgages available to people who want or need to buy a home.
The housing market has stalled. House sales in May this year were 43 per cent less than 12 months earlier. This affects labour mobility as people who need to move for work can’t. It keeps house values artificially low as the supply of homes for sale outstrips demand from potential buyers unable to get mortgages. That in turn affects confidence in the economy. Younger people aspiring to buy a home find they can’t get a mortgage that gives them that important first foot on the housing ladder. A year ago, you could find 33 lenders willing to lend 100 per cent of the cost of your new home. Right now, there are only two. This locks up the private-rented sector too as people find they can’t move out of it. Together, this provides a powerful impetus tipping the economy towards recession.
This week’s proposals from the government do not address the lack of availability of mortgages from the main lending banks. They could have granted councils the power to offer loans at competitive rates as a way of getting the market moving again. Councils could use their financial power and security (they can’t go bust) to borrow at more advantageous rates on the open market than individuals or most institutions.
There are many credit-worthy individuals with good incomes and secure jobs who can’t get mortgages. This scheme would help them. There are others who pose a higher financial risk who councils should not lend to. But with repossessions up 48 per cent over the past year, we could offer them longer-term repayment plans that help keep them in their homes. This would be cheaper for the taxpayer in the long run than having to house newly homeless people in B&B accommodation. And for people looking for their first property, councils could offer to lend them their deposit in return for a small stake in the property they’re buying – in effect, an expansion of the popular shared-ownership scheme. Again, in the long-term, a low risk option that could help stimulate the housing market, support aspirational citizens, and help steer the economy away from recession.
Of course councils would need to be cautious about taking on risk they may not fully understand. But there are plenty of financial institutions and lenders out there who would offer the expertise in return for a share of the business. Some councils are already looking at piloting such a scheme in return for a share in the property being bought.
In 1980 around 600,000 mortgages were lent by local authorities at a time when the financial institutions were less flexible about lending. Since then, the banks have taken a near-monopoly on this market. Today, we are seeing the banks become more inflexible and this is threatening the livelihood of millions who would be affected if recession comes. Councils are well placed to intervene, supporting homeowners and homebuyers in a way that could keep the economy stable. And that, after all, means securing the future for those millions of hard-working British people who need and deserve Labour’s support through the current economic difficulties.